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Contracts
Rutgers University, Newark School of Law
Chen, Ronald K.

Contracts Outline
Professor Chen, 2011

I.  The Elements of Contract Law  

A. What is a contract?
1.       R 2d §1 – Contract Defined
a.       A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

B. Types of Contracts
1.       Express
a.       Parties expressly agree to certain words and terms.
2.       Implied in Fact
a.       No express agreement
b.       Conduct of the parties implies an agreement from which an obligation in contract can be said to exist.
c.        Treated the same way as express contracts .
3.       Implied in Law (Quasi Contracts)
a.       Not really a contract at all.
b.       Recovery is where justice so requires.
c.        No reference to intentions or expressions of the parties.
d.       Duty based on concept of unjust enrichment.
4.       Bilateral Contract
a.       A promise is exchanged for a promise.
b.       Must be mutuality of obligation.
i.      Either both parties are bound or neither is bound.
5.       Unilateral Contract (R 2d §45)
a.       A promise is exchanged for a performance or something else.
b.       Only one promise is present.
c.        Person performing is not bound to perform the act, but if they begin, the promise becomes enforceable. But, offer-or has no duty to perform until completion, and can rescind offer if the action is not performed in a reasonable time.

C. Required Elements of A Contract
1.       Bargain (R 2d §17)
a.       Formation of a contract requires a bargain which includes manifestation of mutual assent and consideration.
2.       Mutual Assent
a.       Takes place through offer and acceptance.
b.       Requires that each party makes a promise and/or begins to render a performance.
3.       Consideration (R 2d §71)
a.       A performance or return promise must induce the other parties promise or performance.
b.       May consist of act, forbearance, or changing legal relation.



D. Alternatives To Contract
1.       Promissory Estoppel
a.       No contract created, but promises reasonably induce action or forbearance on the other party’s part and therefore the promise is held binding when necessary to avoid injustice.
b.       Reliance is enough to require enforcement even though there was no bargain or consideration.
2.       Unjust Enrichment
a.       Enforcement allowed in cases where it would be unjust to let a party receive a benefit without having to pay for it.




II. CONSIDERATION: Assuming that there is a sufficiently definite and sufficiently formal agreement, the plaintiff must show that the agreement was supported by adequate consideration. A performance or return promise must induce the other parties promise or performance.  May consist of act, forbearance, or changing legal relation.  Does it induce the other party to make the return promise or act.

A. Rules Involved
1.       R 2d §17 – Requirement of a Bargain
2.       R 2d § 71 – Requirement of Exchange; Types of Exchanges
a.       To constitute a consideration, a performance or a return promise must be bargained for.
b    A performance or return promise is bargained for if it is sought by
the promisor in exchange for his promise and is given by the promisee in exchange for that promise (mutual inducement)
3.       R 2d §73 – Performance of Legal Duty Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of a bargain.
4.       R 2d §74 – Settlement of Claims (Forbearing from asserting an invalid claim is not consideration unless uncertainty as to claim being valid or forbearing party believing claim is valid).
5.       R 2d §79 – Adequacy of Consideration; Mutuality of Obligation If the requirement of consideration is met, there is no additional requirement of  (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment the promisee; or (b) equivalence in the values exchanged; or (c) “mutuality of obligation”
6.       R 2d §81 – Consideration as Motive or Inducing Cause (What is bargained for doesn’t have to be what induces that making of a promise and can still be consideration if it isn’t).
7.       R 2d §86 – Promise for Benefit Received (Promise in recognition of past benefit binding to extent its necessary to prevent injustice)
a.       Material Benefit Rule: A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice
b.       A promise is not binding under Subsection (1)
i.      If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
ii.      To the extent that its value is disproportionate to the benefit.

B. Basic Elements
1.       Serves to distinguish between promises that are and are not enforceable.
2.       Contracts that lack consideration are not enforced.
3.       Definition:
a.       A bargained for exchange.  Either bilateral or unilateral
i.      Bilateral is a promise for a promise
ii.      Unilateral is a promise for a performance.

1.       Hamer v. Sidway
a.       Case where uncle promises to pay nephew if nephew refrains from drinking, smoking, etc. D’s estate refuses to pay saying it was to benefit to P.
b.       Rule:  A promise is supported by consideration if one party suffers a detriment or the forbearance as a result of promise, court will not look into the adequacy of exchange.
2.       Denney V. Reppert
a.       Case where three armed men robbed a bank, bank offered a $1500 reward for information leading to capture. Multiple people accepted reward. Reppert, Off duty cop only one eligible for reward.
b.       Rule:  Employees and public officials acting within the scope of their duty cannot receive a reward offered to the general public. Prior duty is not consideration for present promise.
3.       Fisher V. Union Trust
a.       Daughter brought suit for the full performance of her father’s promise to give her a property next door free of mortgage. The consideration suggested of one dollar could not have induced the father to give her the mortgage because it came after the delivery of the deed.
b.       Rule:  If the consideration for a promise is merely fluffy feelings then it lacks consideration. If the act or promise does not induce the return promise then it cannot be consideration.
4.       Duncan V. Black
a.       The seller of a parcel of land promised the buyer he would have a 65 acre cotton allotment, but cotton allotments were cut in subsequent years.
b.       Rule:  A court will not enforce a promise that was obtained in exchange for consideration that is illusory, illegal or against public policy.


5.       Batsakis v. Demotsis
a.       P loaned D 500,000 drachmae, equivalent to $25 in exchange for $2000 plus interest to be paid upon D’s return to US.  Upon return, D says want of consideration of $ in 1975. Court holds it will not inquire into sufficiency of the consideration when the parties get exactly what they contract for.
b.       Rule:  The inadequacy/inequality of agreed to consideration does not render a contract void.


Moral or Past Consideration:  A promise given for moral or past consideration is an attempt to discharge a moral (not legal) obligation.  These types of promises are generally un-enforceable, with a few exceptions:
§  A promise to pay a barred debt either by statute of limitations or bankruptcy.
§  A promise to perform a voidable promise (ie infancy or fraud).
§  A promise made to compensate for some past material benefit to promisor. (Material Benefit Rule) R 2d §86 (CHEN HATES THIS)

1.       Mills v. Wyman
a.       Case where P brings suit against D to recover for care of son (who eventually died). D wrote a letter to P promising to pay him for the expense of caring for his son. A moral obligation is not sufficient to constitute valuable consideration. D’s promise made out of “transient feelings of gratitude”
b.       Rule:  A promise based solely on a moral obligation fails for lack of consideration. Promise is legally enforceable only when promisor gains something or promisee loses something.

2.       Webb v. McGowin  (Material Benefit Rule)
a.       Webb was about to drop heavy block when he sees McGowin standing below.  Option is dropping block and killing employer or falling with it and severely wound self. In consideration of P’s efforts, D subsequently agreed to pay for care of P for the rest of P’s life.  P sues D’s estate after D died to enforce promise.
b.       Material benefit ruleè Where promisee cares for, improves, and preserves the property of promisor without the promisor’s request, material benefit is sufficient consideration for the promisor’s subsequent agreement to pay for the service.

Difference between these two cases is largely due to the lack of time for bargaining, mills v wyman he could have bargained but didn’t.


Promissory Estoppel and Equitable Estoppel:  Former rule as seen in Kirksey v. Kirksey was that reliance was irrelevant.  Today however, the rule is that if a promise induces reliance by promisee in a way which was reasonably foreseeable, the promise will be legally enforceable atleast to the extent of the reliance. Was there a Promises?????  Defense You Should have known…

§90. PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE  (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the prom

consideration of $1. When Thomason attempted to purchase the property within the allotted time Berscher had already sold it.
b.       Rule:  The contract amounted to an options contract where even nominal consideration will suffice to keep the option open for the allotted time.


18.    James Baird v. Gimbel Bros., Inc. (Old View: No liability for Subcontractor Withdrawal)Chen’s View
a.       Gimbel, D, offered to supply linoleum to various contractors who are bidding on a public construction contract.  Baird, P, relying on D’s quoted prices, submitted a bid and later the same day received a telegraph message from D that its quoted prices were in error.  P’s bid was accepted. 
b.       Rule:  the doctrine of promissory estoppel shall not be applied in cases where an offer is not intended to become a promise until a consideration is received.
19.    Drennan v. Star Paving Co.  (Modern View:  Liability for Subcontractor Withdrawal where Reliance Foreseeable & Reasonable)  Restatement 87(2)
a.       Drennan, P, sued star, D, to recover damages when D could not perform the paving work at the price quoted in its subcontracting bid. 
b.       Rule: where the general contractor relied on the subcontractor’s bid and is unable to find another subcontractor for the same amount of money, this reliance acts as a substitute for consideration.
20.    Goodman V. Dicker.
a.       Dicker, П made certain expenditures after applying for an Emerson radio and phonograph franchise in the District of Columbia upon the inducement of an Emerson representative, Goodman, ∆. While ∆ had represented that the franchise would be granted and radios would be delivered, no franchise was approved. 
b.       Rule: One who by his language or conduct leads another to do what he would not otherwise have done shall is responsible for the loss or injury created there from.


When Promises Become Enforceable

Mutual Assent:

§ 18. Manifestation of Mutual Assent:  Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.

§ 20. Effect of Misunderstanding:  (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and neither party knows or has reason to know the meaning attached by the other; or (b) each party knows or each party has reason to know the meaning attached by the other. (2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.

§201. Whose Meaning Prevails:  (1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. (3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

§ 22. Mode of Assent: Offer and Acceptance:  (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.